How much rent is too much rent? Regardless of the amount of income your business generates, rent is always a major factor to consider. Sure, you want to rent a space that looks good and accessible, but is it really worth it if you can’t afford it?
Most people go for the cheapest option that won’t scare away their customers. But, if you want something better, read on as we take you through some of the things you should consider to know how much rent you can actually afford.
Four Factors to Consider Before Renting Office Space
1. Rent to Revenue Ratio
Revenue is basically the amount of money your business generates from selling goods or services. Therefore, the rent to revenue ratio is the money your business spends on rent in relation to what it earns.
You can calculate your rent to revenue ratio by dividing your annual rent by your anticipated annual revenue. For example, if your potential renting space costs $3000 per month, then the annual rent translates to $36,000. If you expect annual net revenue of about $200,000, then your rent to revenue ratio is 0.18, or 18%.
Determining the best rent to revenue ratio for your business can be instrumental in keeping your leasing decisions in check. For example, if your annual rent is $15,000, and you have annual revenue of about $150,000, your rent to revenue ratio is 10%. Depending on the nature of your business, the best rent to revenue ratio can average between 5% and 20%.
2. Occupancy Cost
The costs of leasing space don’t just stop at rent. Other costs also come into play in addition to your base rent. Apart from rent, your business might also have to pay for things like property insurance, common area maintenance fees, utilities, and property taxes.
3. Traffic and Advertising Costs
Apart from the expenses directly tied to your rent, you should also consider other costs that you might incur when running your business. When you open a new office, you’ll need to generate more traffic to boost sales, and how do you do that? That’s right, through advertising. And if one thing’s for sure, advertising costs a lot of money.
Your rent and the cost of advertising go hand in hand in that; rent is higher in high traffic areas like busy streets and shopping malls. That being said, the high traffic means that you don’t have to spend much on advertising.
On the other hand, low-traffic areas will usually cost less to rent. But, on the downside, you’ll have to spend more on advertising. So, before deciding on which space to rent, you’ll have to consider how much your business can spend on advertising without offsetting other business operations.
4. Is the Space Really Worth the Price?
Once you find a good space that you can afford, you have to ask yourself, is it really worth it, or should I find a cheaper alternative? And how will the space benefit my business?
If your business deals in retail, then renting a high-traffic area with your target demographic is a good move, even if the rent is slightly higher. On the other hand, if you are renting a similar space for a plumbing business or remote work office, then you might be spending too much.
Ready for Your New Office Space?
At Hardy Properties at Intercontinental, we can help you make an informed decision for your next location. We also have numerous flexible and affordable office spaces for lease at North Houston business park. Contact us for all your warehouse and office space needs.